Companies pressed to disclose employee buyout plans

CBS.MarketWatch.com

SAN FRANCISCO (CBS.MW) -- Would you delay your retirement a few weeks if you knew your company was on the verge of making a big buyout offer to longtime employees?

A special 11-judge panel will decide if companies considering sweetened retirement packages must notify workers of the prospect.

If you're like most people, of course you would. The problem is often finding out just what management is planning -- and when the changes will be implemented.

A special 11-judge panel of a federal appeals court is examining when and if companies considering a sweetened retirement package must notify workers.

The case, which could be decided any day, has the potential to expand pension protections for millions of workers, or leave them in the dark when they are doing some of their most critical retirement planning. Ultimately, it may go to the U.S. Supreme Court.

Discussions underway

The case involves a former Exxon Corp.
XOM, +0.08%
oil-rig worker from Southern California who planned to retire in January 1996.Ernest Bins heard rumors of a benefit increase, so he delayed retiring a month and grilled managers about it hoping to take advantage of the new rules.But the supervisors said they knew nothing.

It turned out Exxon U.S.A. had been studying the benefits increase for months as an incentive for early retirements.The company president had reviewed the plan in December 1995 and the parent company approved it in January 1996.

It was announced two weeks after Bins retired, depriving him of a potential $35,000 to $40,000 in immediate retirement benefits.

Companies have a duty to disclose improvements to employees, whether the changes are buyouts, severance packages or other 'golden handshakes.'

Last August, three judges on the 9th U.S. Circuit Court of Appeals said companies have a financial obligation as operators of the pension plans to tell employees when improvements are under "serious consideration."

A company can't just sit on the information. Under federal pension law, companies have a duty to disclose improvements to employees, whether the changes are buyouts, severance packages or other "golden handshakes."

Without a requirement to volunteer information to retirees, "it rewards companies for being deceptive and sneaky," said Thomas Moukawsher, the Groton, Connecticut attorney for Bins. "The better the job they do at concealing information, the more they are shielded from liability."

Under current law, companies are only liable for making false statements to employees, Moukawsher said.

Exxon attorney James Severson in San Francisco says adopting the voluntary disclosure rule will create a great uncertainty for companies.

"A company as big as Exxon-Mobil is reviewing pensions on a continuing basis," he said. "The notion that one has to make some voluntary announcement any time a change is considered would create an administrative nightmare and mislead employees."

Any announcement of potential changes alone "would have the work force up in arms. Employees don?t know if their job is secure," Severson said. Then if no change is made, "it would get people pretty upset for nothing." He said a further problem is the potential to alert competitors to proprietary information about such things as downsizing plans.

Startling decision

The new terms set up by the three-judge appellate panel said companies have a duty, not just to answer direct questions, but to announce plan improvements that would be important to anyone's decision about when to retire.

The news rocked the corporate pension market. This was the first appeals court in the country to require companies to volunteer early notification even if employees don't ask the right questions.

But the decision could be in jeopardy. The appeals court ordered reconsideration of that groundbreaking decision. Now a special 11-judge panel has heard arguments and is preparing a new ruling in the Bins case. A tape of the court's session will appear on C-SPAN's "Courts in America" program June 3.

During the arguments, only a few of the 11 judges seemed sympathetic with the Exxon request to role back the notification requirement.If the court holds to its current position the case is almost certain to go to the U.S. Supreme Court.

Until then, the appeals court has raised issues about early disclosure to employees that is rekindling the issue in courts around the country.

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